System software refers to the files and programs that make up your computer's operating system. System files include libraries of functions, system services, drivers for printers and other hardware, system preferences, and other configuration files. The programs that are part of the system software include assemblers, compilers, file management tools, system utilites, and debuggers.
The system software is installed on your computer when you install your operating system. You can update the software by running programs such as "Windows Update" for Windows or "Software Update" for Mac OS X. Unlike application programs, however, system software is not meant to be run by the end user. For example, while you might use your Web browser every day, you probably don't have much use for an assembler program (unless, of course, you are a computer programmer).
Since system software runs at the most basic level of your computer, it is called "low-level" software. It generates the user interface and allows the operating system to interact with the hardware. Fortunately, you don't have to worry about what the system software is doing since it just runs in the background. It's nice to think you are working at a "high-level" anyway.